Karayilmaz v Karayilmaz
[2016] VSC 463
•5 August 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
S CI 2016 01101
IN THE MATTER of the application by YASEMIN KARAYILMAZ under section 77 of the Transfer of Land Act 1958 (Vic) and section 69 of the Trustee Act 1958 (Vic)
BETWEEN:
| YASEMIN KARAYILMAZ | Plaintiff |
| v | |
| UYGUR KARAYILMAZ | Defendant |
JUDGE: | LANSDOWNE AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 20 June 2016 |
DATE OF JUDGMENT: | 5 August 2016 |
CASE MAY BE CITED AS: | Karayilmaz v Karayilmaz |
MEDIUM NEUTRAL CITATION: | [2016] VSC 463 |
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PAYMENT OUT FROM FUNDS IN COURT – Competing claims by former husband and wife following payment in by mortgagee of balance proceeds of sale of former matrimonial home – Plaintiff wife the former registered proprietor – Family law orders providing for payment of $30,000 to wife then transfer of home or balance proceeds after sale to husband – Whether orders created an equitable interest for husband or a mere equity – Held that each party acquired an equitable interest – Priority established by family law orders – Whether there is a factual basis to postpone wife’s priority under the orders to the husband’s interest – No factual basis established for such postponement – Whether such postponement is possible as a matter of law given the constitutional issues that would arise if the priority established by the family law orders was sought to be disturbed by application in this Court briefly discussed – Family Law Act 1975 (Cth) ss 79, 79A.
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APPEARANCES: | Counsel | Solicitors |
| For the plaintiff | Mr K Rotarou, solicitor | Melbourne Lawyers & Mediators |
| The defendant appeared in person |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 1
Facts....................................................................................................................................................... 3
Applicable legal principles and issues........................................................................................... 5
Discussion of matters raised by the defendant.......................................................................... 12
Damage to property.................................................................................................................... 12
Failure to pay rent to the defendant......................................................................................... 14
Effect on credit rating................................................................................................................. 17
Conclusion......................................................................................................................................... 23
Costs.................................................................................................................................................... 23
Orders................................................................................................................................................. 25
HER HONOUR:
Introduction
This is an application for payment out of funds which were deposited into Court by a mortgagee pursuant to s 77 of the Transfer of Land Act 1958 (Vic) (‘Transfer of Land Act’) and s 69 of the Trustee Act 1958 (Vic). The mortgagee deposited the sum of $30,671.39 into Court on 9 December 2015 after exercising its power to sell the subject property, 25 Village Avenue, Taylors Lakes (‘the property’) for the sum of $319,000 on 29 August 2015.
The plaintiff is the former registered proprietor of the property. The defendant is her former husband, who lodged a caveat claiming an equitable interest in the property pursuant to orders made by the Federal Circuit Court in a family law proceeding between the parties. Those orders were made on 20 February 2015.
There is another interested party being the purchasers from the plaintiff of the property under an earlier contract of sale which did not proceed. Those purchasers also lodged a caveat in respect of the interest pursuant to that contract. They have subsequently provided their consent to payment out to the plaintiff of the whole of the funds in Court.
The plaintiff seeks that the whole of the funds be paid to her on the basis that this was what the orders of the Federal Circuit Court provided. Those orders were made by way of property settlement between the plaintiff and the defendant pursuant to s 79 of the Family Law Act 1975 (Cth) (‘Family Law Act’). They relevantly provided as follows:
1.The Husband pay to the Wife via her solicitors the sum of $30,000 (“the payment”) on or before 1 April 2015 (“the date”);
2.Contemporaneously with the payment and the superannuation split referred to in Order 6 hereof, the Wife shall transfer of all of her right, title and interest in the property situate at and known as 25 Village Avenue, Taylors Lakes, in the State of Victoria (“the property”) to the Husband at the expense of the Husband, and the husband shall discharge the mortgage (“the discharge”), (including any arrears);
3.In the event that the whole of the payment or discharge has not been made by the date, the property be forthwith sold altogether out of Court (“the sale”) and upon completion of the sale, the proceeds of the sale be applied:
a.First to pay all costs, commissions and expenses of the sale;
b.Secondly to discharge the mortgage and any other encumbrance affecting the real property;
c.Thirdly so much of the payment as is then outstanding together with interest thereon calculated at the rate in accordance with the Family Law Rules per annum adjusted monthly from the date to the Wife;
d.Fourthly the balance, if any, to the Husband.
4. Pending the payment or completion of the sale:
a.The parties hold their respective interests in the real property upon trust pursuant to these orders; and
b.The Wife notify the estate agent of the property to pay the husband any ongoing rent in to the husband’s Westpac bank account BSB 733-XXX account no 62XXXX and the husband shall meet the mortgage repayments and outgoings as and when they fall due over the property; and
c.Neither party encumber the real property without the consent in writing of the other party.
[Account no. removed for security purposes]
The defendant opposes payment out to the plaintiff, and seeks that the whole of the funds be paid to him but in trust for their two children.
The defendant is not legally represented. He raises a number of matters in support of his application. He alleges that the plaintiff should not receive the funds in Court because:
(a) she did not contribute to the joint loan over the property;
(b) she did not comply with the Federal Circuit Court orders;
(c) in particular she did not pay money she received for rent for the property into his bank account to enable him to pay the mortgage as the orders required;
(d) she damaged the property thereby reducing its value on sale; and
(e) she damaged his credit rating by making false statements in her own loan application, and in a child support application, with the result that he was unable to borrow the money required to pay her out in accordance with the Federal Circuit Court orders.
The competing applications for payment were heard on one day, 20 June 2016. I indicated at the end of that day that I would order payment out to the plaintiff and that I would order the defendant to pay her costs of the proceeding (although not pre-litigation costs) on the standard basis. I gave brief oral reasons at that time. I now set out my reasons in writing and in more detail.
Facts
The property was first acquired by the plaintiff, then Yasemin Celiker, as a joint tenant with her then husband Mustafa Celiker on 3 April 2002. As a result of a property settlement with Mr Celiker, the property was transferred to the plaintiff solely on 25 February 2005. It was then encumbered by a mortgage to a different lender. Although the loan was in the sole name of the plaintiff, the defendant contributed to repayments from 2004. On 11 March 2008 a mortgage to the Westpac Bank was registered in respect of a loan taken out in the names of both parties. The facts stated thus far are agreed.
The parties were living together in the property until late 2013 or early 2014 (the exact dates are in dispute but are not relevant for current purposes). The plaintiff says that she vacated the property in April 2014 and it was then rented out from April 2014 until either 28 February 2015 or 29 April 2015. The plaintiff was unable to recall which of those dates was correct. A rental statement which is exhibit 3 to the defendant’s affidavit records a last payment of rent by the then tenant on 28 February 2015. It states that the date of the lease expiry is 29 April 2015 but does not show any further rental payments between 28 February 2015 and 29 April 2015. There is no further evidence from the defendant on this point.
The plaintiff organised an auction of the property in late May 2015. The property was passed in, but the plaintiff later sold it to a Mr and Mrs Waszaj for the sum of $295,000 by contract of sale dated 6 June 2015. That sale did not proceed.
The property was subsequently surrendered by both the plaintiff and the defendant to the mortgagee the Westpac Bank and was sold by that bank on 29 August 2015 at auction for the sum of $319,000. The sale settled on 28 September 2015.
The defendant’s evidence is that after he vacated the property for the last time at the end of February 2014, he only visited the property on two subsequent occasions – on 22 May 2015 just prior to the first auction and just prior to the second auction, held on 29 August 2015. On 22 May 2015 the defendant took a video of the property, which was shown in Court and is exhibit 9 to his affidavit. The video shows damage to the walls and various other items of damage. The plaintiff does not dispute that this damage had occurred but says that she was not responsible and that she remedied it prior to the second auction.
As noted earlier, the loan from the Westpac Bank was in the names of both parties. It required repayments of $1561 per month.[1] The rental statement for the property shows that it was rented for the sum of $1521 per month from 17 April 2014 to September of that year and then in the amount of $1434 per month from 30 November 2014. Plainly, the rental of the property alone was insufficient to meet the loan repayments.
[1]Exhibit 2 to the defendant’s affidavit.
Family law proceedings were commenced between the parties in May of 2014. The defendant’s evidence is that he found it difficult to meet the mortgage repayments due to his own rent at his new premises, living expenses and legal fees.[2] The plaintiff’s oral evidence in cross examination is that she paid rent received for the property towards the mortgage (up until the tenants moved out).[3] She has not adduced any documentary evidence to support this statement.
[2]Defendant’s affidavit- final paragraph of the first page and first two paragraphs of second page.
[3]T 34.12-13 & T 37.6. (The transcript incorrectly describes her as Mr Karayilmaz).
The plaintiff obtained a valuation of the property from a valuer on 18 July 2014 which valued the property at $315,000. This compares with an earlier market appraisal obtained by the defendant from a real estate agent dated 26 March 2014 which placed a value of $380,000 on the property.
It appears that the defendant made application to Westpac for variation to the loan on the basis of hardship. Exhibit 5 to his affidavit is a letter dated 24 December 2014 from Westpac refusing that application on the basis that he had provided insufficient information. It is plain from the letter that it refers to an application made by the defendant, although the defendant in his affidavit implies that it was an application made by his former wife. Westpac issued a default notice to the defendant (and I infer, also to the plaintiff) dated 7 January 2015.[4] At that time the arrears were $6,106.64. Further demands were made by the Bank on 19 February 2015,[5] at which time $9,012.82 was said to be owing and on 11 May 2015[6] at which time the arrears were said to be $10,834.02. On 5 February 2015 the parties signed the consent orders that were subsequently made by the Federal Circuit Court on 20 February 2015. As set out earlier, the consent orders required the defendant to pay $30,000 to the plaintiff by 1 April 2015. The defendant acknowledged in his evidence that at the time he agreed to pay his wife this sum he knew that the loan from Westpac was already in default. The defendant’s evidence is that he made applications for a loan to pay this sum to two bodies – The St George Bank and Westpac. These applications were unsuccessful. On 24 April 2015 the defendant’s then solicitors lodged a caveat on his behalf referring to the Federal Circuit Court orders.
[4]Exhibit 13 to the defendant’s affidavit.
[5]Exhibit 6 to the defendant’s affidavit.
[6]Exhibit 7 to the defendant’s affidavit.
Applicable legal principles and issues
Funds paid into Court pursuant to s 77(3) of the Transfer of Land Act by a mortgagee following a mortgagee sale represent the remaining equity in land after payment of the costs of sale, the mortgage, and any other registered interests. It follows that it is only persons who can show an interest in the land that was sold who may claim payment. It is not enough to have a claim for damages or other personal claim against the registered proprietor.
The amount that a claimant may claim will reflect his or her equitable interest. If there are a number of claimants, funds are paid out in order of priority of the competing claims. If the funds are insufficient to meet all claims, then lower ranking claims may not be met. The priority of a claim is generally determined by the date on which the interest was created, or altered, but in some circumstances an interest that is earlier in time may be postponed to one later in time.
In this case, prior to the orders made by the Federal Circuit Court the plaintiff may have had an equitable interest in the property as well as the legal interest she held as its registered proprietor. The defendant may also have had an equitable interest, although not the registered proprietor, by virtue of payments made towards the mortgage, or other matters. Whatever those interests were, however, they were altered by the orders made by the Federal Circuit Court, which were made pursuant to s 79 of the Family Law Act. That section relevantly provides:
79 Alteration of property interests
(1)In property settlement proceedings, the court may make such order as it considers appropriate:
(a)in the case of proceedings with respect to the property of the parties to the marriage or either of them—altering the interests of the parties to the marriage in the property;
…
(2)The court shall not make an order under this section unless it is satisfied that, in all the circumstances, it is just and equitable to make the order.
…
(4)In considering what order (if any) should be made under this section in property settlement proceedings, the court shall take into account:
(a)the financial contribution made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them, or otherwise in relation to any of that last‑mentioned property, whether or not that last‑mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them; and
(b)the contribution (other than a financial contribution) made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them, or otherwise in relation to any of that last‑mentioned property, whether or not that last‑mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them; and
(c)the contribution made by a party to the marriage to the welfare of the family constituted by the parties to the marriage and any children of the marriage, including any contribution made in the capacity of homemaker or parent; and
(d)the effect of any proposed order upon the earning capacity of either party to the marriage; and
(e)the matters referred to in subsection 75(2) so far as they are relevant; and
(f)any other order made under this Act affecting a party to the marriage or a child of the marriage; and
(g)any child support under the Child Support (Assessment) Act 1989 that a party to the marriage has provided, is to provide, or might be liable to provide in the future, for a child of the marriage.
In my procedural orders made 18 April 2016 I had stated in Other Matters that:
There is a question to be determined whether the (Federal Circuit Court order) of itself conferred on the defendant an immediate proprietary interest in the (p)roperty (being an equitable interest) or a mere personal right (an equity) to obtain an equitable interest, by enforcement of the (Federal Circuit Court order).
I made those comments prior to undertaking research on the question. As a consequence of that research, and prior to the trial, I became aware of a line of authority in family law cases to the effect that on the making of orders pursuant to s 79 of the Family Law Act for the transfer of an interest in real estate the transferee immediately obtains an equitable interest in the property to be transferred, prior to the transfer of the legal interest, even if payments ordered to be made in conjunction with the transfer have not at the time of the making of the orders yet been made, and are not subsequently made.[7] I indicated at the commencement of the trial that this was now my preliminary view, and the solicitor for the plaintiff did not cavil with it. Nor did the defendant, who is unrepresented.
[7]Official Trustee in Bankruptcy v Mateo (2003) 127 FCR 217 per Wilcox J at [62] and Merkel J at [128]; Jones v Daniel (2004) 141 FCR 148 per Moore J, with whom Hill and Allsop JJ agreed, at [14]; and Ebner v Pappas (2014) 53 Fam LR 397.
Accordingly, I conclude that the defendant husband acquired an equitable interest on the making of the orders, even though he had not at that stage, and did not subsequently, pay the plaintiff wife the sum ordered to be paid. I consider that the wife retained or obtained an equitable interest in the property, quantified as the sum ordered to be paid to her, $30,000 plus interest calculated in accordance with the order, until such time as that sum was paid. I am fortified in my conclusion that each obtained an equitable interest by the terms of order 4a, which provides that ‘(p)ending the payment or completion of the sale’ ‘(t)he parties hold their respective interests in the real property upon trust pursuant to these orders’. The orders did not confer on the defendant a mere equity, which would have been an insufficient basis to seek payment of the surplus, or any amount of it.
As the surplus funds from the sale of the property are limited, the issue in this case turns on the priority of the parties’ respective equitable interests. The plaintiff contends that on the face of the orders, the plaintiff wife’s interest ranks first. The effect of the orders is that in the event that the husband (here defendant) did not pay the sum of $30,000 to the wife (here the plaintiff) by 1 April 2015 (and there is no dispute that he did not) the property is to be sold, and after payment of the costs of sale, and the mortgage, the wife is to receive $30,000 and interest thereon calculated in accordance with the Family Law Rules. On the calculations of the plaintiff’s solicitor, that sum as at 15 April 2016 was $2,400 and so the amount due to the plaintiff was at that date $32,400[8] which already exceeded the amount held in Court.[9] Accordingly, the plaintiff seeks the whole of the funds.
[8]Plaintiff’s Submissions dated 15 April 2016 at [19]-[25].
[9]The fact that the amount deposited ($30,744.72) is roughly the same as the amount ordered to be paid to the wife is pure coincidence.
I accept the plaintiff’s submission as to the construction of the orders. The proper construction of the orders is that the wife’s equitable interest is the sum of $30,000 plus interest, and this interest takes priority to the husband’s equitable interest in the balance of sale funds, if any.
It is implicit in the submissions and evidence of the defendant that he contends that because of the conduct of his former wife he should receive the surplus funds rather than she. The conduct of which he complains both preceded the Federal Circuit Court orders, and post-dated them. In relation to conduct prior to the orders, he asserts that it was the plaintiff who received the whole benefit of the loan, although he was required to pay fees. This is disputed. The plaintiff’s contention is that the loan was at least in part for the purpose of the defendant’s business.[10] It is neither necessary nor appropriate to determine this issue in this proceeding. The question of the parties’ respective contributions to their assets, their future needs, and what order should be made by way of alteration of property interests to reflect these and other matters was determined by the consent orders made by the Federal Circuit Court.
[10]Submission by the solicitor for the plaintiff on instructions T 16.6.
I discuss below the defendant’s case in relation to the plaintiff’s conduct after the orders were made. I heard this aspect of his case in full with a view to ascertaining if any of the matters that he raises could justify postponement of the plaintiff’s equitable interest in the land. In other words, whether as a matter of equity, the defendant should receive the funds, and not the plaintiff, despite the original intention of the orders. I heard the defendant’s case without determining whether or not, as a matter of law, a party to s 79 orders can effectively obtain a departure from them by establishing in this Court and as a matter of equitable principle a basis for departing from the priority of interests determined by the s 79 orders.
The principles to be applied in determining the priority of competing equitable interests have been the subject of a consideration by the High Court, the Full Court of the Supreme Court of Victoria and the Court of Appeal in a number of cases.[11] I discussed these principles in an earlier decision relating to payment out from funds in Court.[12] In the most recent High Court case, Heid v Reliance Finance Corporation Pty Ltd[13] (‘Heid’) Mason J (as he then was) and Deane J expressed the view that the court should consider:
what is the better equity in an examination of the relevant circumstances. It will always be necessary to characterise the conduct of the holder of the earlier interest in order to determine whether, in all the circumstances, that conduct is such that, in fairness and in justice, the earlier interest should be postponed to the later interest…[14]
[11]Butler v Fairclough (1917) 23 CLR 78; J & J Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546; Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326; Jacobs v Platt Nominees Pty Ltd and ors [1990] VR 146 (‘Platt Nominees’); and Moffett v Dillon [1999] 2 VR 480.
[12]Milenkovic v Belleli and ors [2015] VSC 349 at [197] and following.
[13](1983) 154 CLR 326.
[14](1983) 154 CLR 326, at 342.
This approach was adopted by the Full Court in Jacobs v Platt Nominees Pty Ltd and ors.[15]The approach in Heid places the emphasis on the conduct of the holder of the prior interest, and does not limit that examination to matters of negligence or fraud as submitted by the solicitor for the plaintiff. It is the principle that I apply to determine if the facts justify departure from the priority set by the Federal Circuit Court orders, leaving aside for the moment whether or not this Court could order such a departure in this application.
[15][1990] VR 146.
As discussed further below, I do not consider that the defendant has established a factual basis for departure from the priority established by the orders. Accordingly, it is not necessary to consider the question of whether such a departure is possible as a matter of law. That question involves issues of the interaction between Commonwealth statute law and equitable principle; the jurisdiction of this Court as opposed to the federal courts; and the powers of an associate judge as opposed to those of a judge (a judge of this Court may in certain circumstances hear matters that would otherwise be within the jurisdiction of a federal court, but an associate judge generally cannot). These issues are complex.
The simple answer to the defendant’s case is that the Family Law Act provides a mechanism by which orders made pursuant to s 79, which would otherwise be final, may be reconsidered in limited circumstances. That mechanism is provided by s 79A, which relevantly provides:
79A Setting aside of orders altering property interests
(1)Where, on application by a person affected by an order made by a court under section 79 in property settlement proceedings, the court is satisfied that:
(a)there has been a miscarriage of justice by reason of fraud, duress, suppression of evidence (including failure to disclose relevant information), the giving of false evidence or any other circumstance; or
(b)in the circumstances that have arisen since the order was made it is impracticable for the order to be carried out or impracticable for a part of the order to be carried out; or
(c)a person has defaulted in carrying out an obligation imposed on the person by the order and, in the circumstances that have arisen as a result of that default, it is just and equitable to vary the order or to set the order aside and make another order in substitution for the order; or
(d)in the circumstances that have arisen since the making of the order, being circumstances of an exceptional nature relating to the care, welfare and development of a child of the marriage, the child or, where the applicant has caring responsibility for the child (as defined in subsection (1AA)), the applicant, will suffer hardship if the court does not vary the order or set the order aside and make another order in substitution for the order; or
(e)a proceeds of crime order has been made covering property of the parties to the marriage or either of them, or a proceeds of crime order has been made against a party to the marriage;
the court may, in its discretion, vary the order or set the order aside and, if it considers appropriate, make another order under section 79 in substitution for the order so set aside.
In particular, to the extent the defendant contends that the orders made were no longer appropriate because the plaintiff had not complied with them, his proper remedy was to make application pursuant to s 79A. At the conclusion of the hearing I alerted the defendant to this remedy, and enquired whether he wished this proceeding to be adjourned to enable him to consider utilising it. It then became apparent that he had been advised of this option by the solicitors acting for him in the family law proceedings, but had been unable or unwilling to take it in view of the anticipated legal costs, his focus on the children (who are now in his care) and other continuing family law proceedings.
Discussion of matters raised by the defendant
Damage to property
The plaintiff was under an obligation imposed by the Federal Circuit Court orders to hold her legal interest in the property on trust for the defendant prior to its sale. It would follow that if she caused or permitted any damage to the property, which lowered its value, she may have been in breach of that trust.
There is no dispute that the property was in a damaged condition for the first auction, which the plaintiff organised herself and was conducted 22 May 2015. As noted earlier, the defendant took a video of the property when he attended on 22 May 2015 which was played in court, and clearly shows damage to walls and other damage. The defendant contends that electrical appliances including the oven, cooktop, rangehood and dishwasher had been removed together with other fixtures such as power points and a towel hanger. [16]
[16]In addition to his oral evidence, there is reference to these matters in the email sent by his then lawyers to the then lawyers for the plaintiff- Exhibit 8 to the defendant’s affidavit.
The plaintiff gave an explanation to her solicitors at the time of the first auction for the removal of the appliances- being that they were removed to be repaired and the then proposed purchasers, Mr and Mrs Waszaj, did not require them to be reinstalled. She repeated this explanation under cross examination.[17] She also instructed her lawyers at this time that some of the damage was caused by the tenants, and some damage to the floorboards occasioned by the defendant’s aquarium. She told her lawyers that she could not afford to upgrade the property, despite advice from the real estate agent that this would improve the prospects of sale, and they noted that the property was in need of significant upgrade and maintenance in any event due to its age.[18]
[17]T 69.1-22.
[18]Email from the plaintiff’s solicitors to the defendant’s solicitors dated 9 June 2015, being Exhibit 10 to the defendant’s affidavit.
The plaintiff’s oral evidence in this proceeding is that she caused the kitchen electrical appliances to be repaired and reinstalled and ‘fixed (up) what needed to be fix(ing)’[19] (which did not include the floorboards) prior to the second auction, conducted by the mortgagee. A potential weakness in the plaintiff’s case is that she did not adduce any documentary evidence, such as invoices or photographs, to support this oral evidence. As set out below, the defendant has also shown that the plaintiff gave incorrect information in relation to her employment on her application for a loan to purchase her new home and so I have some doubt as to her reliability as a witness.
[19]T 68.24. See T 68.24-T 69.24.
However, the onus was on the defendant to show that the plaintiff had allowed the property to be surrendered to the mortgagee in a damaged condition and that this caused him loss. In my view, he does not succeed on either of these issues.
The defendant included in his affidavit the video of the property prior to the first auction. The plaintiff was thus on notice of his contention that it was damaged at that time. He did not, however, exhibit to his affidavit any evidence that it remained damaged at the time of the second auction. When I directed his attention to this issue in court he did find, after some time, some photographs of the property at the time of the second auction on his mobile which he sought to tender. I refused that tender because there had been no prior notice given to the plaintiff of that evidence, and it would not have been proportional to the amount in dispute and the time assigned to the trial to allow time for the plaintiff to consider the evidence. Further, there is nothing in the affidavits of the solicitor for the mortgagee on payment in of the funds to suggest that any substantial repairs were required by the mortgagee. There are some repair invoices noted, but they relate to minor matters being locksmith, cleaning and gate repair.[20] I do not consider that the defendant has proved that the property was in a damaged condition when it was surrendered to the mortgagee for the mortgagee sale, or that any such damage was due to act or omission by the plaintiff.
[20]Supplementary affidavit of Michelle Lykiardopoulos sworn 8 December 2015, on Funds in Court file 29726.
In any event, the price obtained at the second auction ($319,000) was greater than the valuation the plaintiff had obtained for the property a year earlier, which was $315,000.[21] The defendant has attached a market appraisal dated 26 March 2014 in the sum of $380,000 to his affidavit[22] but did not obtain a competing valuation from a valuer for the family law proceedings. I regard the valuation as more reliable than the market appraisal. Accordingly, the more reliable evidence of value does not support a necessary element of the defendant’s case, that he suffered loss from the condition of the property at the auction. The defendant has no other valuation as at the date of the auction to show, for example, the condition of the property and how any damage affected its value. Accordingly, even if the plaintiff did not rectify all the damage that she should have rectified, the defendant cannot show that that breach caused him any loss.
[21]Valuation conducted by Opteon (Victoria) Pty Ltd on 18 July 2014, being Exhibit A in the plaintiff’s case.
[22]Exhibit 1 to the defendant’s affidavit.
For these reasons, I do not consider the defendant has proved that the plaintiff breached the trust imposed on her by the Federal Circuit Court orders, or that, if she did, it caused him loss. It follows that there is no factual basis shown to postpone her prior interest in the proceeds of sale to his interest on the basis of breach of trust, even assuming such a postponement was possible in this proceeding.
Failure to pay rent to the defendant
The defendant contends that the plaintiff did not pay the rent she received towards the mortgage. In my view, if proved, this could only constitute a factual basis for postponement of the plaintiff’s prior interest if it was a breach of the Federal Circuit Court orders. Much of the evidence that the defendant adduced in chief and by cross examination of the plaintiff relates to the period prior to the making of those orders. In my view, that evidence is not relevant. If there was any obligation on the plaintiff to direct the rent she received to the mortgage, or otherwise to pay the mortgage or reimburse the defendant for his payments to any extent,[23] then that was overtaken by the final property orders made 20 February 2015. In any event, the defendant said in answer to my direct question that there was no agreement that the plaintiff would direct the rent to payment of the mortgage prior to the Federal Circuit Court orders.[24]
[23]The plaintiff and defendant were joint borrowers and so each was liable to the mortgagee for the whole of the required payments, and perhaps may have had a liability to each other to indemnify that other as to half of any payments made.
[24]T 91.8-15.
The question then becomes- what were the obligations cast upon the parties by the orders in relation to the mortgage, and has the defendant proved that the plaintiff breached her obligation? By order 2, the defendant undertook responsibility for any arrears on the mortgage on transfer to him. Prior to the transfer, or sale if the payment was not made (as it was not), the plaintiff was required by order 4b to notify the real estate agent of the property to pay to the defendant ‘any ongoing rent’ into his nominated bank account and the defendant was required to pay the mortgage, and other outgoings.
The defendant has put into evidence the statement for his nominated bank account for the period 15 December 2014 to 12 June 2015.[25] This includes some, but not the whole, of the period after the making of the orders (20 February 2015) to the sale by the mortgagee (29 August 2015). The statement shows a payment of rent for the property in the sum of $1,324.05 received on 6 March 2015. It appears from the rental records for the property also exhibited by the defendant[26] that rent was paid monthly. The last rental payment shown on the trust ledger included in that rental record, which was printed on 20 February 2015, was $1434 paid on 30 January 2015 for the period to and including 28 February 2015. Accordingly, I infer that the payment shown on the defendant’s bank statement was one month’s rent from 28 February 2015, less outgoings and management fees. There is no other rental payment shown as received by the defendant in the period of the bank statement. This does not prove, however, that the plaintiff breached her obligation under the Federal Circuit Court orders.
[25]Exhibit 15 to his affidavit.
[26]Exhibit 3 to his affidavit.
First, the plaintiff’s obligation was to notify the real estate agent, not to pay the defendant herself. The payment shown as received on 6 March 2015 suggests that she complied with that obligation, as the earlier rental payments shown on the real estate agent trust ledger for the period 17 April 2014 to 30 January 2015 are shown as paid to the plaintiff.
Secondly, and more substantively, the plaintiff could only have been in breach of the intent of the orders if there was more rent received after the rent for the month of March 2015 which she did not cause to be paid to the defendant. The defendant has not proved that there was any such further rent. He could not say to what date the property was rented; the plaintiff in cross examination could not recall; and the only independent documentary evidence is the real estate record which states on its face that it was printed on 20 February 2015. It records the lease expiry date as 29 April 2015, which would be consistent with a six month lease from the first rent recorded as received from this tenant, on 30 October 2014. Someone has written next to the lease expiry date ’60 day notice’, but there is no evidence as to who that person was; whether such a notice was given; and crucially whether any further rent was received after the payment received for the month of March, which is shown on the defendant’s bank records as paid to him. In other words, there is no evidence that any rent was received for April or any later month up until the sale which was not paid to the defendant.
For these reasons, the defendant has not proved that the plaintiff breached the letter or the intent of the Federal Circuit Court orders in relation to payment of rent towards the mortgage. There is accordingly no factual basis for any postponement of her interest under the orders on this ground.
I noted earlier that whatever occurred in relation to payment of the mortgage prior to the date of the Federal Circuit Court orders was overtaken by those orders. As there was evidence directed to payments prior to the date of those orders, and the issue appears important to the parties, I make these brief observations. The plaintiff’s oral evidence in cross examination was that she had paid any rent received towards the mortgage, although she could only identify with certainty one payment made by her,[27] a payment of $1000 made on 5 June 2014, on the loan statement for the period 13 March 2014 to 13 June 2014,[28] which began shortly after the defendant vacated the property following the parties’ separation. The real estate trust ledger[29] shows that rent was first paid to the plaintiff for the property on 22 April 2014, after the first rent was received from the first tenants on 17 April 2014, and payments of rent to her continued with breaks until 30 January 2015.
[27]T 34.12-24.
[28]Exhibit 2 to the defendant’s affidavit.
[29]Exhibit 3 to the defendant’s affidavit.
The defendant indicated in the course of his cross examination of the plaintiff that he would say that he had made all mortgage repayments shown on the loan statement for the period 13 March 2014 to 13 June 2014 except the payment of $1000 on 5 June 2014 identified by the plaintiff.[30] In his own evidence, however, he said that he stopped his mortgage payments in May 2014, because he could no longer afford them after meeting his own rent.[31] The loan statement shows payments made on 13 May 2014 and 13 June 2014 of $1561 on each occasion, in addition to the payment of $1000 made on 5 June 2014. Depending on when the defendant stopped his payments, on his own account at least the payment on 13 June 2014, and possibly also the payment on 13 May 2014, would appear to have been made by the plaintiff.
[30]T 35.19-30.
[31]T 89.27-29; T 90.1-2.
Effect on credit rating
The defendant contends that it was conduct of the plaintiff that prevented him from obtaining a loan to pay out the mortgage and make the payment to the plaintiff that the orders required, because her conduct negatively impacted on his credit rating. If this connection was proved, then arguably it could constitute a factual basis for reopening the orders pursuant to s 79A of the Family Law Act, or, if legally possible, for postponement of the plaintiff’s interest in the surplus funds in this application.
The plaintiff’s conduct about which the defendant complains relates to the information she supplied on an application she made for child support and on her application for a loan to buy her new property. The defendant seeks to show that the plaintiff gave incorrect information on each of these applications. To succeed in establishing an arguable factual basis for postponement of the priority established under the family law orders, the defendant needs to show at least that he was not aware of the conduct in question until after the orders were made; and that the plaintiff’s conduct was the reason, or at least a significant reason, for his inability to comply with the orders.
The application for child support[32] is dated 28 August 2014. I allowed the defendant to put the application into evidence, although this date is well before the orders were made. I did so because the defendant says that he was not aware of the application until after the orders were made.[33] For the purpose of this application, I accept that to be the case. He was not cross examined about the date on which he received the form and so his evidence that he only became aware of it after the orders is unchallenged.
[32]Exhibit 1.
[33]T 46.8-29 and T 47.3-9.
The defendant sought to ask the plaintiff questions about the information on the form in relation to income and in relation to her assets. The only income noted on the form is from Centrelink. It does not record any rental income. When the defendant sought to ask the plaintiff if the property was rented at this time, I informed the plaintiff pursuant to s 128 of the Evidence Act 2008 (Vic) that she was not required to answer if her answer may incriminate her in the commission of an offence. I did so because the form states that the giving of false information is an offence. In relation to assets, the plaintiff agreed in cross examination that at the time she signed the form she owned two houses. The form discloses one only. I gave the same warning pursuant to s 128 to the plaintiff in relation to further questions about assets.
In relation to both matters, the plaintiff objected to answering the questions. Section 128 does permit a court to require a witness to answer questions even if the answer may incriminate the witness in the commission of a criminal offence in certain circumstances. Relevantly, the court must consider that the interests of justice require that the questions be answered and must give the witness a certificate preventing the evidence being used against the witness in other proceedings. I did not require the plaintiff to answer these questions. In my view, the evidence is not required in this proceeding in the interests of justice. Although I gave the defendant the opportunity in this proceeding to demonstrate a factual basis for departing from the priority established by the s 79 orders, I consider that opportunity should be limited. His more appropriate remedy was to make application to vary the consent orders under s 79A of the Family Law Act. Application under that section is specifically designed to deal with situations of this type, and avoids any of the constitutional issues that would arise if this Court sought to depart from a family law order.
Further, and critically, the defendant did not introduce any evidence to show that requiring the plaintiff to answer questions about the information she included on the child support application would advance his contention. His contention is that incorrect information on the child support application adversely affected his credit rating and so affected the outcome of the applications that he made for loans to pay out the existing mortgage and make the required payment to the plaintiff. The defendant says that he made two such applications- one to Westpac, the existing mortgagee and the lender to the plaintiff for her new home at 11 Coppin Lane, Caroline Springs; and one to the St George Bank. Both applications were refused but there is no evidence that either institution knew anything about any incorrect information given by the plaintiff on a child support application.
Finally, there is no evidence that suggests that the information in relation to income was in fact incorrect at the time the application was signed. The only rental record in evidence[34] states that there were no transactions, including no rent received, in August 2014. The trust ledger records rent paid apparently to the plaintiff on 23 July 2014 and not again until 12 September 2014.
[34]Exhibit 3 to the defendant’s affidavit.
The other application completed by the plaintiff which the defendant contends contains incorrect information was by contrast clearly available to one of the lenders he approached, because it is the plaintiff’s application to the same bank, Westpac, for a further home loan to purchase her current home, at 11 Coppin Lane Caroline Springs. The copy application in evidence[35] is not signed or dated, but the plaintiff agreed in cross examination that she made application for this loan in February 2014 and purchased 11 Coppin Lane in March 2014 after receiving the loan. I required the plaintiff to answer questions about the accuracy of the information on the application because there was nothing on it to suggest that the giving of incorrect information would be a criminal offence.
[35]Exhibit 14 to the defendant’s affidavit.
In his own evidence, the defendant said that he made application to Westpac for a loan to make the payment to the plaintiff required by the orders and to discharge the existing mortgage on 4 March 2015 i.e. after the orders were made. His application was refused. He contends that the refusal was because of the incorrect information supplied by the plaintiff on this earlier application for a loan. He says the incorrect information adversely affected his credit rating. He complains about two aspects of incorrect information. This first is the statement by the plaintiff that she was employed at Lumen Australia Pty Ltd. In cross examination, the plaintiff concedes that this was not correct.[36] The defendant has not shown, however, that this incorrect information affected his own application. When he was asked by the bank whether or not this statement was correct, he said he did not know.[37] There is no evidence to show that the bank had otherwise discovered that the information was incorrect, or that it reflected adversely on the defendant’s own application.
[36]T 51.24.
[37]T 96.4.
The other aspect of the plaintiff’s application that the defendant says was incorrect, and adversely affected him, was her statement that she, and so they, have no children. I accept that the presence of dependent children will affect the expenses of an applicant for a loan, and so may be relevant to whether or not the loan is granted. The copy application the defendant exhibits as completed by the plaintiff does not, however, contain any statements about dependants and their expenses. It does not show on its face any incorrect information as supplied by the plaintiff. The defendant says that when he was interviewed about his own application, he was told by the bank officer that there was an inconsistency between his statement that the couple had two children, and his wife’s statement that she had no children, and was asked which was correct. For the purpose of what follows, I assume that this evidence is correct i.e. the plaintiff had incorrectly stated or implied that she had no children, and the bank was concerned about this inconsistency with the correct disclosure by the defendant that they have two children.
Even taking this evidence at its highest, however, I am not persuaded that it was the reason, or was likely to have been a significant contributor, to the refusal by Westpac of the defendant’s own loan application. The simple fact is that the existing loan from Westpac to both the plaintiff and the defendant was already in default, and significant default, when the defendant applied for a further loan to pay out the mortgage and make the required payment to the plaintiff. He concedes[38] that he knew the loan was in default when he signed the consent orders in early February 2015, by which he undertook to pay out the loan and any arrears. He agrees that he had received a default notice from Westpac dated 7 January 2015[39] and I conclude from the contents of the letter from Westpac to him dated 24 December 2014[40] that the hardship application to which it refers, and refuses, was made by him. In other words, the defendant had informed Westpac of difficulties in meeting the existing mortgage by December 2014 and the mortgage had gone into default by January 2015.
[38]T 90.10-16.
[39]Exhibit 13 to his affidavit.
[40]Exhibit 5 to his affidavit.
The default noted in the letter of 7 January 2015 was in the sum of $6,106.64 and so would appear to represent default of several monthly repayments. The defendant (and, presumably, the plaintiff) were given until 14 February 2015 to remedy that default. I infer that they did not, because the defendant also exhibits a letter from Westpac to him dated 19 February 2015[41] stating that the principal of the loan was now due and payable as the arrears noted in the January letter had not been paid, unless the instalment arrears then owing, which had increased to $9,012.82, were paid within 7 days.
[41]Exhibit 6 to his affidavit.
The defendant’s evidence is that he made two applications for a further loan to Westpac- one on 4 March 2015 and an earlier one in February 2015.[42] There is no evidence as to whether or not he or the plaintiff had paid the arrears by the time of these applications. If not paid, then the most likely reason the defendant’s application for a further loan was refused by Westpac was because of this history of default. Indeed, the defendant himself said in evidence that he was told by Westpac that his application for a loan was refused because of the default notices.[43]
[42]T 86-T87.
[43]T 89.4-10.
The position was different when the plaintiff applied for her loan a year earlier. At that time the mortgage does not seem to have been in any significant default. The only loan account statement in evidence for the original loan over the property, which is for the period 13 March 2014 - 13 June 2014, shows payments each of those three months. While the payments do not all seem to have been in the required sum, the statement shows that the loan had reduced in amount outstanding over that time. In other words, at the time the plaintiff made her successful application for another loan in February or March 2014, the loan was not in default at all, or at least to the same extent as when the defendant applied a year later.
There is a further difficulty for the defendant in his assertion that incorrect information given by the plaintiff in her application for a loan in February 2014 is a basis for changing the order of priority for payment of surplus funds after sale of the property as set by the Federal Circuit Court orders. That difficulty is that the copy of her application he has put into evidence in this proceeding was an exhibit to an affidavit he swore in the family law proceedings on 15 December 2014.[44] In other words, he must be taken to have known the contents of the application prior to the Federal Circuit Court orders were made, and indeed, before they were agreed and he signed them on 5 February 2015.
[44]The copy application is contained within Exhibit 14 to his affidavit. That exhibit has a cover sheet showing that it was an annexure to an affidavit sworn by him in the family law proceedings on 15 December 2014.
Conclusion
For the reasons given, I do not consider that the defendant has shown a factual basis for departing from the order of priority for payment of funds after the sale of the property that was set by the Federal Circuit Court orders. Accordingly, it is not necessary to consider the complex legal issues, including constitutional issues, that would arise if this Court as a state court sought to effectively depart from orders made in a federal court in an area of law that is by the Constitution assigned exclusively to the Commonwealth.
Costs
As noted in the introduction, I announced that this would be my decision at the conclusion of the hearing. I then heard a costs application by the plaintiff. The plaintiff sought that the defendant be ordered to pay her pre-litigation costs as well as her costs of the proceeding, and sought that her costs after the date of a Calderbank offer,[45] which the defendant did not accept, be paid on an indemnity basis. The defendant opposed the costs application on the basis that he has limited funds and now has the children living with him. He said that he did not receive the Calderbank offer, which was contained in a letter dated 20 May 2016 sent to him by email that day.
[45]Exhibit B.
I gave brief oral reasons at time for limiting the costs order that I will now make to payment of the plaintiff’s costs of the proceeding on a standard basis. In short, the usual outcome in defended proceedings in this Court is that the unsuccessful party is ordered to pay the legal costs of the proceeding of the successful party, irrespective of questions of capacity to pay. There is no reason shown in this case to depart from this approach. Accordingly, it is appropriate that the defendant be ordered to pay the plaintiff’s costs of the proceeding.
In cases where a party who is unsuccessful at trial is shown to have unreasonably refused an offer to settle the proceeding, called a Calderbank offer, that party can be ordered to pay the successful party’s legal costs to a greater degree than normal- on an indemnity, rather than a reasonable basis. That is what the plaintiff seeks here, in respect of her legal costs after she put her offer. The offer was that if the defendant agreed to payment of the full amount of the funds in Court to the plaintiff, she would pay him $3000 and not seek any costs from him. The plaintiff has put into evidence not only the letter putting the offer, but an email reply from the defendant to the email forwarding the letter. [46] That email, sent by the defendant on 22 May 2016 in reply to the email from the solicitors for the plaintiff sent on 20 May 2016 attaching the letter of offer, refers explicitly to ‘your offer’. It does not explicitly reject the offer, but it is clear from its contents that the offer is not accepted. Accordingly, I find that the defendant did receive the offer and did reject it.
[46]Exhibit C.
I do not, however, consider that the rejection was objectively unreasonable. The legal argument put in the letter of offer, which is said to show that the defendant’s prospects of success are limited, is that the defendant will be unable to show that he had a proprietary interest in the property, and so the funds, as opposed to a personal claim against the plaintiff. As noted earlier, at the directions hearing in this proceeding I did raise this as a potential issue, but it transpired that the line of family law authority clearly establishes that the transferee of property under a s 79 order obtains an equitable interest in that property on the making of the order. The solicitor for the plaintiff accepted this to be correct at the commencement of the trial. In those circumstances, it cannot be said to have been objectively unreasonable for the defendant to have refused an offer that assumed he would not be able to show an equitable interest. For those reasons, I do not consider that the defendant should be ordered to pay the plaintiff’s costs after his failure to take up her offer on an indemnity basis.
Nor do I consider that the defendant should be required to pay the plaintiff’s pre-litigation costs from 15 February 2016 until the proceeding was commenced by filing of her originating motion on 24 March 2016. I accept that it is appropriate and desirable for a person seeking to resolve any dispute, including a dispute about the payment of the surplus funds following a mortgagee sale, to first attempt to arrive at a resolution before instituting proceedings. However, funds are not normally paid into Court by a mortgagee until consent resolution as between claimants has already been explored, at least to some degree, and that was the situation in this case.[47] Given that history, an application to Court is likely to be necessary and further attempts at pre-litigation resolution may not be productive. In this case in particular, I do not think that the defendant should be required to pay the plaintiff’s pre-litigation costs given the evident animosity between them and so likely necessity of an application.
[47]Affidavit of Michelle Lykiardopoulos sworn 29 October 2015 in Funds in Court file 29726.
Orders
I will make orders that the full amount of the funds in Court be paid to the solicitor for the plaintiff, as requested by the plaintiff, and that the defendant pay the plaintiff’s costs of the proceeding.
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